Bank Groups Cite `Extreme Importance’ of Redlining Case

By Chris Bruce

Banking groups representing more than 95 percent of the nation’s 5,850 banks want to join a case they said could expand and distort federal fair lending laws ( United States v. KleinBank , D. Minn., 17-cv-00136, motion filed 6/5/17 ).

The lawsuit, filed by the Justice Department seven days before President Donald Trump took office, could test the new administration’s willingness to press ahead with a fair lending enforcement program much-criticized by bankers during the Obama years.

The case involves KleinBank, a Minnesota-chartered subsidiary of Klein Financial, Inc., a privately held financial holding company based in Chaska, Minn. The Justice Department alleged that from 2010 until at least 2015, KleinBank avoided serving specific credit needs in several majority-minority census tracts.

KleinBank itself asked the U.S. District Court for the District of Minnesota to dismiss the suit June 5. The bank, which has offices in three Minnesota locations — Big Lake, Buffalo, and Chanhassen — said it’s being accused of redlining because it hasn’t extended its presence into Minneapolis and St. Paul.

“This stunning allegation is devoid of legal support, as the Department of Justice lacks the authority to direct a modest-sized community bank to expand into all of a major metropolitan area it has never served nor sought to serve,” the bank said in a brief.

Bank groups made their filing later on June 5, asking Judge Richard H. Kyle for permission to file a brief in the case, The Minnesota Bankers Association, joined by the American Bankers Association, the Independent Community Bankers of America, and 40 state banking groups, said the Justice Department’s lawsuit “would have the Court adopt a new, expansive definition of redlining.”

That new definition disregards current interagency examination procedures, the fair lending laws themselves, regulations relied upon by bank regulators and bank compliance officers, as well as existing evidence standards for possible violations, said the brief, which is subject to court approval before being formally included in the case.

“Changing the redlining definition and evidentiary standards in that manner would immediately subject banks all across the country to new legal, regulatory and reputational risk,” the groups said.

KleinBank is represented by John W. Lundquist of Fredrikson & Byron in Minneapolis.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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